Third Quarter 2017 Earnings October 25, 2017

Transcription

1 Third Quarter 2017 Earnings October 25, 2017

2 Forward-Looking Statements Certain statements in these slides and made during this presentation may be considered forward-looking statements. These statements reflect management s current views and are subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied in these statements. Factors which could cause actual results to differ include but are not limited to: (i) the level of our indebtedness and changes in interest rates; (ii) industry conditions, including but not limited to changes in the cost or availability of raw materials, energy and transportation costs, competition we face, cyclicality and changes in consumer preferences, demand and pricing for our products; (iii) global economic conditions and political changes, including but not limited to the impairment of financial institutions, changes in currency exchange rates, credit ratings issued by recognized credit rating organizations, the amount of our future pension funding obligation, changes in tax laws and pension and health care costs; (iv) unanticipated expenditures related to the cost of compliance with existing and new environmental and other governmental regulations and to actual or potential litigation; (v) whether we experience a material disruption at one of our manufacturing facilities; (vi) risks inherent in conducting business through joint ventures; (vii) the failure to realize the expected synergies and cost-savings from our purchase of the pulp business of Weyerhaeuser Company or delay in realization thereof; (viii) purchase price adjustments relating to our pending transaction to transfer our North American consumer packaging business to Graphic Packaging Holding Company in exchange for, among other things, an equity interest in an entity that will hold the assets for the combined business; (ix) receipt of regulatory approvals for the Graphic Packing transaction and the successful fulfillment or waiver of all other closing conditions without unexpected delays or conditions; (x) the successful closing of the Graphic Packing transaction within the estimated timeframe; (xi) the uncertainty of the expected financial performance of the combined business following completion of the Graphic Packaging transaction; (xii) the failure of the combined business to realize the expected synergies, cost-savings and other benefits from the Graphic Packaging transaction or delay in realization thereof; (xiii) the successful financing of the Graphic Packaging transaction; (ix) unforeseen tax treatment relating to the Graphic Packaging transaction, (xv) litigation related to the Graphic Packaging transaction or limitations or restrictions imposed by regulatory authorities that may delay or negatively impact the Graphic Packaging transaction; and (xvi) our ability to achieve the benefits we expect from all other strategic acquisitions, divestitures and restructurings. These and other factors that could cause or contribute to actual results differing materially from such forward- looking statements are discussed in greater detail in the Company s Securities and Exchange Commission filings. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise. 2

3 Statements Relating to Non-GAAP Financial Measures During the course of this presentation, certain non U.S. GAAP financial measures will be presented, such as Adjusted Operating EPS, Adjusted EBIT, Adjusted EBITDA, Adjusted EBITDA Margin, Free Cash Flow and Adjusted ROIC. A reconciliation of all presented non-gaap measures (and their components) to U.S. GAAP financial measures is available on the company s website at internationalpaper.com under Performance/Investors. 3

4 Ilim JV Information All financial information and statistical measures regarding our 50/50 Ilim joint venture in Russia ( Ilim ), other than historical International Paper Equity Earnings and dividends received by International Paper, have been prepared by the management of Ilim. Any projected financial information and statistical measures reflect the current views of Ilim management and are subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such projections. See Forward-Looking Statements. 4

5 Third Quarter 2017 Results Adj. Operating EPS 1 Continued solid global demand in Industrial Packaging and Global Cellulose Fibers 1H price increases realized across key businesses Achieving more synergies faster in Global Cellulose Fibers $0.91 $0.65 $1.08 Operations impacted by hurricanes Record high OCC prices Strong Ilim operational results; equity earnings of $48MM 3Q16 2Q17 3Q17 Increased dividend to $1.90/share 1 Adjusted operating EPS based on Adjusted Operating Earnings (defined as Net Earnings (GAAP) from continuing operations before special items and non-operating pension expense) 5

6 International Paper Value Creating Strategy and Portfolio Strategy Fiber-based Packaging, Pulp and Paper Advantaged positions in Attractive markets Focused Portfolio - Revenue 1 Industrial Packaging 2 Global Cellulose Fibers Printing Papers 70% 11% 19% 1 3Q17 YTD excluding N.A. Consumer Packaging 2 Includes EMEA Coated Paperboard Packaging 6

7 Investment Thesis North America Consumer Packaging Compelling Investment Maintains exposure and optionality in strategic fiberbased consumer packaging space Vehicle for meaningful value creation and growth Excellent value for IP shareholders Strong financial profile for the newly combined entity Significant integration and cost synergies Generates cash for debt reduction leverage neutral Highly efficient tax structure Ongoing cash dividends to IP EPS neutral to slightly accretive Graphic Packaging Post Transaction Leading consumer packaging company Broad product offering with complete fiber substrate base Innovative leader in consumer packaging and foodservice Long-standing relationships with leading consumer packaged goods and food service partners Significant free cash flow to reinvest to improve returns and increase integration Best-in-class management team to drive growth and value creation Consumer Packaging Foodservice IP is investing in a premier consumer packaging platform, well positioned for long-term shareholder value creation 7

8 Compelling Transaction North America Consumer Packaging Overview Combines IP s N.A. Consumer Packaging business with Graphic Packaging Creates leading consumer packaging company with $6 billion of revenue IP contributes N.A. Consumer Packaging business into Graphic Packaging subsidiary Transaction 2-year lock-up IP cannot sell any of its ownership interest 5-year standstill IP cannot increase its ownership interest No IP involvement in operation or governance of the business Transaction valued at $1.8 billion at an 8.6X EBITDA multiple 1 Valuation IP receives 20.5% ownership in GPK subsidiary 2 valued at $1.14 billion IP receives cash proceeds of $660 million from loan assumed by GPK subsidiary Earnings neutral to slightly accretive Financial Considerations Dividends to IP of ~$25 million annually (based on current GPK dividend per share) Leverage neutral ($660 million cash proceeds to pay down debt) No current cash taxes expected on transaction Closing Expected in early 2018 Subject to customary regulatory approval and certain conditions 1 Based on adjusted 2017 estimated EBITDA of $210 million 2 Subsidiary of Graphic Packaging Holding that will hold combined assets of the business 8

9 3Q17 Financial Results 3Q16 2Q17 3Q17 Sales ($B) $5.3 $5.8 $5.9 Adj. EBITDA 1 ($MM) Adj. EBIT 1 ($MM) $613 $499 $711 Adj. Operating EPS 2 $0.91 $0.65 $1.08 Operating EPS impact of Ilim F/X 3 IP Share $0.01 ($0.04) $0.02 Adj. EBITDA 1 ($MM) $927 $856 $1, ,074 Adj. EBITDA Margin % 14.8% 18.2% Free Cash Flow 4 ($MM) $575 $355 $624 3Q16 2Q17 3Q17 1 From continuing operations before special items and non-operating pension expense 2 Adjusted operating EPS based on Adjusted Operating Earnings (defined as Net Earnings (GAAP) from continuing operations before special items and non-operating pension expense) 3 Represents F/X impact including that related to Ilim JV USD-denominated net debt (balance of ~$0.8B at end of 3Q17) 4 See slide #22 for a reconciliation of cash provided by operations to free cash flow 9

10 3Q17 vs. 2Q17 Adj. Operating EPS.30 (.04).06 (.02) (.03) (.03).65 2Q17 Price / Mix Volume Operations & Costs Maintenance Outages Input Costs Corporate /Other Ilim JV 3Q17 Adjusted operating EPS based on Adjusted Operating Earnings (defined as Net Earnings (GAAP) from continuing operations before special items and non-operating pension expense) 10

11 $ Million Industrial Packaging 3Q17 vs. 2Q17 Adj. EBIT 1 79 (14) (29) 62 (21) Q17 Price / Mix Volume Operations 1 & Costs Segment adjusted operating profit before special items Maintenance Outages Input Costs 3Q17 11

12 Riverdale Mill Conversion Investment Overview Strategic Rationale: Supports growth in our strategic markets Enhances world-class mill system and significantly improves our whitetop linerboard cost Improves system flexibility Improves our whitetop linerboard product offering Investment: $300MM to convert No. 15 paper machine from uncoated freesheet to high quality whitetop virgin containerboard; will add 450k tons of capacity Timing: Targeting to complete conversion mid-2019 N.A. Containerboard Mill System 12

13 $ Million Global Cellulose Fibers 3Q17 vs. 2Q17 Adj. EBIT (1) (7) 12 2Q17 Price / Mix Volume Operations & Costs Maintenance Outages Input Costs 3Q17 1 Segment adjusted operating profit before special items 13

14 Global Cellulose Fibers Integration Synergies Update Synergy Category Description 3Q17 Actual ($MM) YTD Actual ($MM) Current Run Rate Annualized ($MM) Full Synergy Target ($MM) SG&A / Other Eliminate duplication $27 $47 $41 $50 Commercial Mix Opportunities Customer and segment optimization High value product growth Leverage innovation $7 $18 $28 $50 Manufacturing, Supply Chain, & Sourcing Grade / machine mix optimization Logistics optimization Efficiency improvements (Waste, Freight) Purchasing opportunities $18 $37 $71 $100 Total $52 $102 $140 $200 14

15 $ Million Printing Papers 3Q17 vs. 2Q17 Adj. EBIT 1 42 (4) (3) 2 2Q17 Price / Mix Volume Operations 1 Segment adjusted operating profit before special items & Costs Maintenance Outages Input Costs 3Q17 15

16 $ Million Consumer Packaging 3Q17 vs. 2Q17 Adj. EBIT (5) 4 2Q17 Price / Mix Volume Operations & Costs Maintenance Outages Input Costs 3Q17 1 Segment adjusted operating profit before special items 16

17 Ilim Joint Venture 3Q17 vs. 2Q17 Sales Volume (thousand metric tonnes) $ Million$ 3Q16 2Q17 3Q Sales $473 $546 $523 EBITDA $172 $121 $184 F/X (Impact of USD Net Debt) 1 $6 ($46) $18 Adj. Operational EBITDA 2 $166 $167 $166 IP Equity Earnings (Loss) 3 $46 $21 $48 Higher pricing offset by lower sales volumes from Bratsk outage F/X gain (non-cash) on USD denominated net debt driven by ruble strengthening 4Q17 equity earnings projected to be $55MM-$60MM 4 on strong, demand-driven market fundamentals Ilim JV results are on U.S. GAAP basis 1 Represents F/X impact including amounts related to Ilim JV USD-denominated net debt (balance of ~$0.8B at end of 3Q17); Ilim Group s functional currency is the Ruble (RUB); Non-functional-denominated currency balances are measured monthly using the month-end exchange rate 2 Before F/X impact including USD-denominated net debt 3 IP Equity Earnings (Loss) for 3Q16, 2Q17 and 3Q17 include after-tax F/X gains (losses) (primarily on USD-denominated net debt) of $3MM, $(18)MM and $7MM, respectively 4 At September 30, 2017 RUB/USD exchange rate 17

18 Fourth Quarter Outlook Changes from 3Q17 North America EMEA & Russia Brazil Price / Mix Volume Operations & Other Mill Maintenance Outages Inputs & Freight Packaging Realization Stable Stable Cellulose Fibers Improving Paper Stable Stable Seasonality Packaging 1 Less Day Seasonality Stable Cellulose Fibers Improved Seasonality Paper Stable Stable Seasonality Packaging Non-Repeats Stable Stable Cellulose Fibers Non-Repeat with Offsets Paper Stable Stable Stable Packaging Decrease $4MM Stable Stable Cellulose Fibers Increase $5MM Papers Increase $11MM Stable Stable Packaging Lower OCC with Offsets Stable Stable Cellulose Fibers Higher Wood Printing Papers Stable Higher Wood & Energy Higher Fiber Other Items Corporate expense, ~$15MM-$20MM in 4Q17 Interest expense, in line with full-year outlook of ~$575MM-$600MM Tax rate, ~33% in 4Q17 Ilim JV, forecasting Equity Earnings of ~$55MM-$60MM 1 1 At Sept. 30, 2017 RUB/USD exchange rate 18

19 Capital Allocation Competitive and Sustainable Dividend Q317 Increase the Sixth Consecutive since Restoration Post Great Recession PRINCIPLES Competitive: Payout ratio and yield in line with market and peers Sustainable: Pressure tested to 60% - 80% of U.S. trough FCF Target: 40% - 50% of FCF Incremental: Increase as financial performance improves Periodic: Annual review $2.00 $1.80 $1.60 $1.40 $1.20 $1.00 $0.80 $0.60 $0.40 $0.20 HISTORY $900 MM $800 $700 $600 $500 $400 $300 $200 $100 $0.00 $0 Dividends Paid Dividend / Share 19

20 Full Year Outlook Solid Second Half with Continued Momentum Positioned for strong 4Q results Healthy demand outlook in Industrial Packaging and Global Cellulose Fibers Flow through of 1H price increases and continued momentum Global Cellulose Fibers synergies Lower overall input costs Seasonally light maintenance schedule Anticipate strong operational results at Ilim Remain confident in full year view of 10%+ YoY EBITDA growth 20

21 Appendix Investor Relations Contacts Guillermo Gutierrez Michele Vargas Media Contact Tom Ryan

22 Free Cash Flow $ Million 3Q16 2Q17 3Q17 Cash Provided by Operations $341 $645 ($709) Cash Invested in Capital Projects ($266) ($290) ($271) Cash Contribution to Pension Plan $500 - $1,250 Kleen Products Settlement - - $354 Free Cash Flow $575 $355 $624 22

23 Maintenance Outages Expenses 2017 Forecast $ Million 1Q17A 2Q17A 3Q17A 4Q17F 2017F Industrial Packaging $71 $100 $38 $30 $239 North America Brazil Global Cellulose Fibers $50 $44 $7 $12 $113 Printing Papers $23 $43 $1 $11 $78 North America Europe Brazil India Consumer Packaging $0 $35 $0 $4 $39 North America Europe Total Impact $144 $222 $46 $57 $469 23

24 Thousand Tons Thousand Tons Thousand Tons Thousand Tons North American Downtime 322 Containerboard Cellulose Fibers Uncoated Papers Coated Paperboard Maintenance Economic 24

25 Special Items Before Tax Continuing Operations Industrial Packaging Global Cellulose Fibers Special Items Pre-Tax ($ Million) 3Q16 2Q17 3Q17 Brazil Packaging Intangible Asset Amort. ($10) Kleen Products Settlement Agreement ($354) Impairment of Asia Box & Restructuring ($5) Other ($3) ($5) Pulp Business Acquisition ($7) ($5) ($6) Other ($2) Printing Papers Other ($2) Consumer Pkg. Asia Foodservice Sale ($9) Corporate ArborGen Sale $14 Debt Extinguishment ($29) India Packaging Evaluation Write-off ($17) Regulatory Pre-Engineering Write-off ($8) Interest Income on Income Tax Refund Claims Other $2 Total Special Items Before Tax ($66) ($353) ($23) $4 25

26 Special Items Net of Taxes 2Q17 3Q17 $ Million EPS $ Million EPS Earnings Before Special Items $270 $0.65 $449 $1.08 Special Items Net of Taxes: Tax Expense International Investment Restructuring ($19) Brazil Packaging Intangible Asset Amortization ($7) Pulp Business Acquisition ($3) ($4) Kleen Products Settlement Agreement ($219) Asia Foodservice Sale ($4) ArborGen Sale $9 Net Income Tax Refund Claims $47 Other $1 ($4) Total Special Items Net of Taxes ($169) ($0.41) ($34) ($0.08) Non-Operating Pension Expense ($21) ($0.05) ($20) ($0.05) Net Earnings $80 $0.19 $395 $

27 Adj. Operating Profits by Industry Segment Continuing Operations $ Million$ 3Q16 2Q17 3Q17 Earnings (Loss) From Continuing Operations Before Income Taxes and Equity Earnings $373 ($29) $503 Interest Expense, Net $132 $141 3 $152 Noncontrolling Interest / Equity Earnings Adjustment $1 ($1) - Corporate Items, Net $11 $4 $19 Special Items, Net $66 $353 $23 Non-Operating Pension Expense $42 $34 $33 Adj. Operating Profit Before Special Items $625 $502 $730 Industrial Packaging 1 $428 $407 $484 Global Cellulose Fibers 1,2 ($31) $12 $57 Printing Papers 1 $167 $88 $135 Consumer Packaging 1 $61 ($5) $54 Total Adj. Industry Segment Operating Profit 1,2 $625 $502 $730 Equity Earnings (Loss), net of taxes Ilim $46 $21 $48 1 Excludes special items (Non-GAAP) 2 Earnings from newly acquired pulp business are reflected beginning December 1, Excludes a special item of $4MM in interest income 27

28 Geographic Business Segment Operating Results Quarterly $ Million Sales D & A Adj. Operating Profit 1 3Q16 2Q17 3Q17 3Q17 3Q16 2Q17 3Q17 Industrial Packaging North America $3,151 $3,336 $3,383 $174 $439 $408 $492 Europe $313 $341 $333 $10 $0 $5 ($5) Brazil $62 $60 $68 $15 ($9) ($6) ($3) Global Cellulose Fibers 2 Global Cellulose Fibers $242 $612 $654 $69 ($31) $12 $57 Printing Papers North America $477 $446 $470 $21 $81 $21 $54 Europe $278 $299 $292 $11 $40 $26 $38 Brazil $229 $232 $239 $26 $54 $43 $46 India $35 $47 $44 $5 ($8) ($2) ($3) Consumer Packaging North America $407 $395 $403 $24 $39 ($19) $33 Europe $87 $79 $88 $5 $22 $14 $21 Does not reflect total company sales 1 Excludes special items (Non-GAAP) 2 Sales and Earnings from newly acquired pulp business are reflected beginning December 1,

29 2017 Operating Earnings Pre-Tax $MM Tax $MM Net Earnings from Continuing Operations Noncontrolling Interest $MM Equity Earnings Net Income $MM Average Shares MM Diluted EPS 1 1Q17 $244 ($83) - $48 $ $0.50 2Q17 ($29) $89 - $20 $ $0.19 3Q17 $503 ($153) - $45 $ $0.95 Net Special Items 1Q17 $14 $7 - - $ $0.05 2Q17 $353 ($184) - - $ $0.41 3Q17 $23 $ $ $0.08 Non-Operating Pension Expense 1Q17 $31 ($12) - - $ $0.05 2Q17 $34 ($13) - - $ $0.05 3Q17 $33 ($13) - - $ $0.05 Adj. Operating Earnings 1Q17 $289 ($88) - $48 $ $0.60 2Q17 $358 ($108) - $20 $ $0.65 3Q17 $559 ($155) - $45 $ $ A reconciliation to GAAP EPS is available at under the Performance tab, Investors section 29

30 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q Adj. Operating EPS Impact of Mineral Rights Gain Final Land Sale as originally reported adjusted for elimination of the Ilim JV reporting lag Net Earnings from continuing operations and before special items; 2010 onward reflects Operating Earnings xpedx is reflected as a Discontinued Operation from 2010 onward 30

31 3Q17 vs. 3Q16 Adj. Operating EPS.40 (.01) (.18) (.16) (.03) Q16 Price / Mix Volume Operations & Costs Maintenance Outages Input Costs Corporate & Other Items Ilim JV Pulp Acquisition Adjusted operating EPS based on Adjusted Operating Earnings (defined as Net Earnings (GAAP) from continuing operations before special items and non-operating pension expense) 3Q17 31

32 $ Million Industrial Packaging 3Q17 vs. 3Q16 Adj. EBIT (14) (79) 6 (81) Q16 Price / Mix Volume Operations 1 Segment adjusted operating profit before special items & Costs Maintenance Outages Input Costs 3Q17 32

33 Industrial Packaging Volume and Pricing Trends 3Q17 vs. 2Q17 3Q17 vs. 3Q16 Business Volume Price / Mix per Ton Volume Price / Mix per Ton N.A. Container 1 0.5% $30 1.6% $69 European Container (7%) 23 3% 26 Average IP volume and price realization (includes the impact of mix across all segments) 1 On a per day FBA basis 33

34 N.A. Industrial Packaging Relative Adj. EBITDA Margins 21.4% 19.4% 22.0% TTM % 20.8% 22.0% 18.2% 18.8% PKG Reports 10/26 WRK Reports 11/2 IP PCA WestRock 3Q16 2Q17 3Q17 1 Trailing Twelve Months IP Adjusted EBITDA margins based on North American Industrial Packaging operating profit before special items Excludes the Recycling Business, revenue from trade volumes and other non-us sales Competitor Adjusted EBITDA margin estimates obtained from public filings and IP analysis 34

35 $ Million Global Cellulose Fibers 3Q17 vs. 3Q16 Adj. EBIT (1) (6) 13 (31) 29 3Q16 Price / Mix Volume Operations & Costs 1 Segment adjusted operating profit before special items Maintenance Outages Input Costs Pulp Acquisition 3Q17 35

36 Global Cellulose Fibers Volume and Pricing Trends 3Q17 vs. 2Q17 3Q17 vs. 3Q16 1 Business Volume Price / Mix per Tonne Volume Price / Mix per Tonne Pulp (metric ton) 2% $15 1% $33 Average volume and price realization (includes the impact of mix across all grades and destinations) 1 Pro Forma basis- Combined Global Cellulose Fibers 36

37 $ Million Printing Papers 3Q17 vs. 3Q16 Adj. EBIT (19) 8 (18) 9 (12) 135 3Q16 Price / Mix Volume Operations 1 Segment adjusted operating profit before special items & Costs Maintenance Outages Input Costs 3Q17 37

38 Printing Papers Volume and Pricing Trends 3Q17 vs. 2Q17 3Q17 vs. 3Q16 Business Volume Price / Mix per Ton Volume Price / Mix per Ton N.A. Printing Papers 7% ($8) 5% ($64) European Papers 1 (4%) 22 (2%) 18 Average IP volume and price realization (includes the impact of mix across all grades) 1 Excludes Russia 38

39 N.A. Printing Papers Relative Adj. EBITDA Margins 21.6% 19.1% 16.0% 15.5% 17.3% TTM % 13.1% 9.0% PKG Reports 10/26 UFS Reports 10/27 IP PCA Domtar 3Q16 2Q17 3Q17 1 Trailing Twelve Months IP Adjusted EBITDA margins based on operating profit from continuing operations before special items Competitor Adjusted EBITDA margin estimates obtained from public filings and IP analysis 39

40 Printing Papers IP Brazil $ Million 3Q16 2Q17 3Q17 Sales $229 $232 $239 Adj. Earnings $54 $43 $46 Adj. EBITDA Margin 35% 30% 30% 3Q17 vs. 2Q17 3Q17 vs. 3Q16 Uncoated Freesheet Volume Price / Mix per Ton Volume Price / Mix per Ton Domestic (BRL) 26% (R$72) (2%) R$27 Export (USD) (22%) $22 1% $10 Segment adjusted operating profit before special items IP Brazil results are reported in the Printing Papers segment Average IP Brazil price realization (includes the impact of mix across all grades) 40

41 $ Million Consumer Packaging 3Q17 vs. 3Q16 Adj. EBIT (2) (4) 2 (4) 54 3Q16 Price / Mix Volume Operations & Costs Maintenance Outages Input Costs 3Q17 1 Segment adjusted operating profit before special items 41

42 Consumer Packaging Volume and Pricing Trends 3Q17 vs. 2Q17 3Q17 vs. 3Q16 Volume Price / Mix per Ton Volume Price / Mix per Ton N.A. Coated Paperboard 1 4% $14 (2%) $10 Revenue Revenue Foodservice (2%) (2%) Average IP price realization (includes the impact of mix across all grades) 42

43 Ilim Joint Venture Full Year Financials Sales Volume (Million metric tonnes) Sales ($B) Debt ($B) Adj. Operating EBITDA ($MM) F/X Gain (Loss) 1 ($MM) (80) (674) (188) 63 EBITDA ($MM) 123 (215) Depreciation ($MM) EBIT ($MM) (53) (403) Interest Expense ($MM) Net Income / (Loss) ($MM) (72) (359) IP Equity Earnings / (Loss) ($MM) (46) (194) Dividends (to IP) ($MM) Ilim JV results are US GAAP basis 1 Represents F/X impact including that related to Ilim JV USD-denominated net debt (balance of ~$0.6B at year end 2016) 43

44 Ilim Joint Venture Volume and Pricing Trends 3Q17 vs. 2Q17 3Q17 vs. 3Q16 Business Volume Price / Mix per Tonne Volume Price / Mix per Tonne Pulp (metric ton) (10%) ($2) (6%) $49 Average Ilim JV (100%) volume and price realization (includes the impact of mix across all grades and destinations) 44

45 Total Cash Cost Components 3Q17 YTD Overhead 10% Chemicals 7% Fiber 35% Energy 8% Labor 12% North American mills only (Excludes Newly Acquired Pulp Business) Freight 12% Materials 16% 45

46 Global Input Costs vs. 2Q17 $23MM Unfavorable, or $0.04/Share By Business By Input Type $1 $1 $5 ($4) Wood ($21) OCC ($6) ($3) ($19) Industrial Packaging Global Cellulose Fibers Printing Papers Consumer Packaging Energy Wood Chemicals Freight OCC Fiber Energy Chemicals Freight North America Outside North America Input costs ($MM) for continuing businesses 46

47 Global Input Costs vs. 3Q16 $95MM Unfavorable, or $0.16/Share By Business By Input Type $2 Wood ($12) ($4) ($6) ($7) ($7) OCC ($81) ($75) Industrial Packaging Global Cellulose Fibers Printing Papers Consumer Packaging Fiber Energy Chemicals Freight Energy Wood Chemicals Freight OCC North America Outside North America Input costs ($MM) for continuing businesses 47

48 U.S. Mill Wood Delivered Cost Trend 3Q17 Average Cost Flat vs. 2Q IP data, cost Indexed to January 2007 values 48

49 U.S. OCC Delivered Cost Trend 3Q17 Average Cost Up 6% vs. 2Q IP data, cost Indexed to January 2007 values 49

50 U.S. Natural Gas Cost Trend 3Q17 Average Cost Down 4% vs. 2Q IP data, cost Indexed to January 2007 values NYMEX Natural Gas closing prices 50

51 U.S. Fuel Oil Cost Trend 3Q17 Average Cost Up 4% vs. 2Q IP data, cost Indexed to January 2007 values WTI Crude prices 51

52 U.S. Chemical Composite Cost Trend 3Q17 Average Cost up 3% vs. 2Q IP data, cost Indexed to January 2007 values Delivered cost to US facilities: includes Caustic Soda, Sodium Chlorate, Starch and Sulfuric Acid excludes WY PKG 52

53 2017 Global Consumption Annual Purchase Estimates for Key Inputs Commodity North America Non North America Natural Gas (MMBTUs) 85,000,000 11,000,000 Energy Fuel Oil (Barrels) 450, ,000 Coal (Tons) 85, ,000 Fiber Wood (Tons) 60,000,000 8,000,000 Old Corrugated Containers / DLK (Tons) 4,900, ,000 Caustic Soda (Tons) 470,000 70,000 Starch (Tons) 390, ,000 Chemicals Sodium Chlorate (Tons) 210,000 60,000 LD Polyethylene (Tons) 40,000 - Latex (Tons) 10,000 10,000 53